A greener energy future for Illinois depends on a smarter way of approving ComEd rate hikes
Replacing “formula rates” with a system of practical pro-environment incentives would encourage electric utilities to move faster from a reliance on fossil fuels.
Time was, we just wanted an electrical utility’s wires to bring reliable power to our homes at a reasonable rate.
Now, in an era of dangerous climate change, it’s no longer enough just to keep our lights and TVs on. It’s important that power companies lead the way toward greater energy conservation, support for electric heat and vehicles and renewable energy. They must ensure, as well, that all communities share in the jobs and contracts.
To get all that, Illinois needs a smarter way to regulate utility rates. We need a rate structure that places the incentives in all the right places. We need a system that both keeps costs reasonable and rewards utilities for speeding Illinois toward a future of clean energy. It should be a carrot-and-stick approach that rewards utilities for achieving important goals but also imposes significant penalties for failures to live up to promises.
Historically, utilities in Illinois had an incentive to spend as much money as they could, in general allowed by the state to set aside a percentage of every dollar as pure profit. To keep rates from skyrocketing, the state set up the Illinois Commerce Commission, staffed with experts who had to approve rate increases.
That changed in 2011, a year of heavy storms, flooding and widespread electrical outages. As part of an agreement to improve the reliability of the state’s electric power grid, ComEd — over then-Gov. Pat Quinn’s veto — won the ability to impose “formula rates” through 2022. Formula rates, a part of the Energy Infrastructure Modernization Act, made it easier for ComEd to charge more for electricity without going before the ICC.
ComEd then modernized its power grid, making it more reliable. It also replaced old electric meters throughout the region with so-called smart meters. But according to a report issued this week by the Illinois Public Interest Research Group, the smart meters have not delivered the promised benefits to consumers.
Instead, formula rates have proven to be a gold mine for ComEd while whacking ratepayers in the wallet, PIRG says. Over eight years, ComEd’s authorized profits have risen by 47% while customers have been hit by a 37% increase in the delivery portion of what they pay for power. ComEd’s profits, according to the report, could reach $1 billion a year by 2023.
ComEd has completed its grid improvements, but those formula rates will continue to run up your electric bill. No wonder ComEd sought to make the formula rates permanent.
ComEd argues that formula rates delivered significant benefits to consumers. But in the years since those rates were put in place, we have learned that they were approved at a time when ComEd was mounting a bold, backroom influence campaign in the Legislature involving jobs, money and contracts. In a deferred prosecution agreement reached with federal prosecutors, ComEd in August agreed to pay a $200 million fine.
On Wednesday, a confidant of Illinois House Speaker Michael Madigan, former ComEd CEO Anne Pramaggiore and two others pleaded not guilty to taking part in a scheme to channel money and jobs to Madigan allies in an effort to curry favor. Madigan, who has been charged with no crime, has emphatically denied playing any part in the scheme.
In August, Gov. J.B. Pritzker said he wants to get rid of formula rates. But that doesn’t mean Illinois necessarily would have to revert back to the old practice of having utility rate increases approved by the ICC, which has lost many of its most experienced staff members.
Public interest groups are pushing instead for a performance-based system of rate increases that better benefits all stakeholders, with stronger incentives for ComEd and its downstate counterpart, Ameren, to move Illinois toward clean energy. Pritzker has set a target for Illinois of 100% clean energy by 2050 and 750,000 electric cars on Illinois roads by 2030.
ComEd’s commitment — voluntarily or kicking and screaming — is essential to hitting those pro-environment goals in a way that is also pro-consumer.
Legislation to replace the formula rates has been languishing in the Legislature. But Illinois desperately needs to charge up its efforts to meet renewable energy goals while containing costs. That begins with a smarter way of overseeing rate hikes by ComEd.
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